Don’t trip yourself up with expenses at Christmas

Dec 13, 2021 | Tax

The work Christmas party made a stuttering comeback this year, and with it, all those questions about tax we so love answering.  

Whether you were able to have a full-blown Christmas party, or you’ve scaled it back to a virtual event, what can and can’t you claim as a business expense before calculating corporation tax?

The Christmas do

Well, the good news is that you can claim back your Christmas party expenses for corporation tax purposes, within certain parameters. Read on to make sure your event falls within the exemption, to allow you to deduct it from your profits before tax. 

How much can you claim back on your Christmas party?

Christmas parties usually count as a tax-free benefit, so long as you invite all of your employees and it’s a one-off annual event. 

The maximum budget is £150 per head, which sounds like a pretty extravagant party! But before you splurge on the Bollinger and limousines, be aware of a couple of caveats. 

That £150 per head is spread across all of your social events for the year. If you want a spring social, factor that into your budget for the Christmas do. The £150 limit also includes VAT and the cost of transport or overnight stays. 

If you end up tipping over the £150 per head limit, then you’ll have to report and pay tax on some or all of the events. For example, if a single event works out at more than £150 per head, the whole cost will be subject to tax. If you have two events that are each below £150 per head, but in combination are above the limit, then you would only be able to claim on one.

The rules on bringing a plus one 

The tax exemption still applies if you allow your employees to bring a plus one. You’ll have £150 to spend on the employee and an additional £150 per head for their chosen guest.

What about online events?

If you’ve had to make a last-minute switch to an online event, nothing changes in the tax position. These rules apply to online and virtual parties in the same way that they apply to in-person events. So your virtual cocktail making class can still be deductible when calculating corporation tax.

What can’t you claim?

December is usually a busy time of year with client drinks and catch-ups. And these smaller meet-ups or online catch-ups may be more accessible this year than a large Christmas party, due to changes in coronavirus restrictions. So, are your drinks with clients deductible in the same way as your Christmas do?

The short answer is no. The cost of entertaining clients and money spent on gifts are typically not allowable expenses against profits. So they can’t be deducted from your profits before tax when you prepare your company accounts.

But you can save income tax on client entertainment if you pay for the drinks or event through your business account (as opposed to your personal account). You should still keep your receipts as a record of your business expenses. You’ll end up reporting this cost on your P11D form. 

How we can help

All these issues of tax-deductible expenses can be tricky. Give us a call if you’d like to ask us a question, or if you’d like any help in preparing your accounts.

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